Bank concentration and efficiency of commercial banks in Vietnam

Abstract

The relationship between bank concentration and bank efficiency remains a controversial topic. This paper investigates to what degree bank concentration dampens or enhances the response of bank efficiency in Vietnam and vice versa. This study applies Concentration Ratio (CR) and Herfindahl - Hirschman Index (HHI) as proxies of bank concentration, while efficiency scores are calculated by stochastic frontier approach (SFA) and data envelopment analysis (DEA). To test the Structure Conduct Performance (SCP) and Efficient Structure (ES) paradigm, the authors use Granger causality approach. However, regarding the causality running from bank efficiency and bank concentration, the results are complex: we find the causality running from concentration to efficiency is weak, whereas efficiency Granger-caused negatively competition. Over a relatively long time period, from 2007 to 2014, the more efficient commercial banks operated in the less concentrated market